Unlocking Shareholder Value At Global Self Storage

Summary

• Shares of Global Self Storage are valued at a deep discount to the NAV that would be realized if the properties were liquidated.
• A justification of market cap rate is provided to substantiate the purported NAV for the company.
• The discount of market share price to NAV is directly attributable to an inordinately high proportion of G&A.
• G&A for Global Self Storage is discussed both in comparison with other self-storage REITs and in terms of its own growth rates.
• The argument is made that shareholders would benefit if the company were to simply liquidate its portfolio of properties at prevailing market cap rates.

Finding an Appropriate Cap Rate

Within a reasonable range, the aggregate cap rate for the 12 properties owned by Global Self Storage (NASDAQ:SELF) can be estimated. Examining the most current corporate presentation of SELF renders considerable insight into the quality of the portfolio:

1. Good economic demographics.
2. Good visibility and effective signage.
3. Situated close to a metropolitan area.
4. Relatively recently constructed.
5. Typical size between 70,000 and 80,000 square feet.
6. Decent hurdles for new competitors.
7. Supervisory professional management and highly trained on-site personnel with emphasis on customer service.
8. High-tech security with automated gates and camera monitoring.
9. Product diversity in unit size offerings and mixture of climate-controlled and traditional.
10. Internet and technology to facilitate rental, and such devices as self-service kiosks situated on site.
11. Directed strategic marketing programs with strong media presence.
12. Sophisticated monitoring of local markets and dynamic adjustment of prices.
13. 24/7 call service centers.

Most certainly, SELF'S properties demonstrate the highest and best REIT characteristics.

Although assigning a definitive cap rate to any single property will depend upon a number of local factors, we can construct a reasonable range of portfolio estimates in three ways:

1. Access what relevant cap rate survey information might be available from established public sources.
2. View listings of similar properties on realtor websites.
3. Perform computations of embedded cap rates implied by the market pricing of other publicly traded REITs.

The information that can be derived from public sources (1 and 2 above) suggests a range of between 5% and 6%. However, the most reliable approach is to produce analysis that is contained in Exhibits 1, 2 and 3 below using specific data for three other self-storage REITs: Extra Space Storage (EXR), CubeSmart (CUBE) and Life Storage (LSI).

Exhibit 1

Exhibit 2

Exhibit 3

In examining each of the above, please note that the 2019 property revenues

Analyst’s Disclosure:I am/we are long SELF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.